After three torturous and grueling years since HUD announced the return of Spot Approval, the program has finally returned under the new name Single Unit
Approval. Single Unit Approval allows an FHA loan to fund within a condominium association that is not FHA approved. But is this a good development?
The answer is a painful yes.
Why painful? First, HUD is completely unprepared for this program, which is shocking given that it had years to craft the rules and prepare for the roll-out and train their people on it.
Second, HUD is requiring that the HOA sign a five-page certification that states that various financial information conforms to FHA regulations. There isn’t a property manager in the country that knows or should have to know FHA regulations to do their job, and there are going to be many that will simply refuse to sign the certification. I expect very quickly that HUD will rescind this bad idea and only require that the information is true and correct to the best of their knowledge.
For Single Unit Approval, unlike full project approval, HUD is allowing only collection and foreclosure litigation within the HOA. This limitation will prevent a large number of otherwise perfectly eligible associations from allowing Single Unit loans. In all fairness to HUD, this might have been implemented to prevent lenders from having to make difficult decisions on the type of litigation before they funded the loan.
It’s not all bad news. Most expected Florida to be excluded from Single Unit but it was in fact included. This should provide some much needed relief to the Sunshine States’ FHA condominium market. In addition, HUD is allowing DE lenders to fund these Single Unit loans and not requiring that only DELRAP certified lenders fund them.
While there is some pain in the new program, it will likely result in an additional eighty thousand FHA insured mortgages funded in condominiums in the first full year. Government never makes anything easy, evidenced by the fact it took passage of a federal law and three years to get here. Once the kinks are worked out, it should be a beneficial addition for seniors and the low to moderate income borrowers that FHA serves.